Intel Corp. $26 - Nasdaq symbol INTC

INTEL CORP. $26 (Nasdaq symbol INTC; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 5.8 billion; Market cap: $150.8 billion; WSSF Rating: Above average) is the world’s largest maker of electronic chips. Microprocessors for personal computers and servers account for two-thirds of its revenues. Intel ran into trouble a few years ago as new chips from its main competitor, Advanced Micro Devices Inc. (AMD), cut into its market share. But Intel has done a good job cutting costs, which will help it survive future price wars with AMD. The company has also shifted its research focus, from raw chip speed to chips that use less energy and run cooler. In the high-margin server market, AMD recently started selling its new “Barcelona” chip, which has four processors (quad-core) compared with just two on competing Intel chips. Multi-core chips let computers perform several tasks simultaneously. However, Intel will soon launch its own quad-core chips. It’s also developing a way to put eight or more processors on a single chip. Products like these should help Intel raise its share of the high-end chip market. Intel’s revenue in the three months ended September 29, 2007 rose to a record $10.1 billion, up 16.1% from $8.7 billion a year earlier. Earnings grew 40.9%, to $0.31 a share (total $1.9 billion) from $0.22 a share ($1.3 billion). Gross margin (gross profits as a percentage of revenue) rose to 52.4% from 49.1%. The company spent $1.5 billion (14.9% of revenue) on research in the latest quarter, up 7.1% from $1.4 billion (16.1% of revenue) a year earlier. New products from these investments should continue to spur sales. For example, Intel is working on new computer chips that help block viruses and online intrusions. The stock now trades at 22.6 times the $1.15 a share it will probably earn this year. That’s reasonable in light of Intel’s huge research costs and market share. The $0.45 dividend yields 1.7%. Intel is a buy.

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One of the sweetest and most profitable pleasures of successful investing is to buy high-quality “value stocks” (or stocks that are reasonably priced, if not cheap, in relation to its sales, earnings or assets), then hold on to them as mainstream investors recognize the value and push up the share price.

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